Q3 2019 Earnings Call

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Thanks for calling at your conference I deeply.

Hi, It is Trinity.

Thank you and your last name filing.

Smith.

I T H.

And first name.

[noise] Rachel are a C H E L.

The company, you're calling from.

[noise] era A.I.E.R.A.

And your telephone number with area code.

Yes, Eric code, it's too wanted to.

960 3697.

Thank you all plus you directly on line.

Thank you.

You're welcome.

With the direct customer and end user of our railcar equipment.

Our services from leasing and administration to maintenance design and engineering to field support and all are all an important part of our platform.

Generating unique market insights and providing steady recurring and predictable levels of revenue and cash flow throughout the railcar cycle.

The commercial and financial synergies generated from the platform have a number of benefits which include the following.

A lower overall cost of business operations, including the cost advantage to asset base.

Lower cost of ownership for maintenance and lower relative best DNA.

The tax advantage investment in leasing equipment that generates significant cash flow.

And a valuable sales channel to originate organic lease fleet growth of our railcar lease portfolio.

We expect significant cash flow generation and a lower all lower overall cost platform to result in a higher level of relative return on investment through the railcar cycle.

Our vision is to be the premier provider of railcar products and services.

Across our organization Trinity's teams are actively working to differentiate our platform of products and services.

Our expectations are to build customer loyalty with industrial shippers by enhancing the customer experience through innovation and technology that improve the value proposition of railcar transportation.

The North American rail transportation Ecosphere encompasses over 1.7 million railcars.

As an owned and managed fleet of approximately 125000 railcars truly rail has room to expand our presence in the railcar market.

We will do this in a deliberate and returns focused manner.

Our integrated platform of businesses work together to deliver solutions that optimize the lifecycle ownership and usage of railcar equipment.

And provide our customers with a single source for all of their room for our equipment and service things.

Few railcar providers in a kit offer the breadth and depth of Trinity Rail's platform to any given customer.

Our platform provides a unique ability to integrate new services with our traditional product offering grow our existing base of recurring revenue from long term leases and add high margin services that enhance our returns.

We are built to deliver.

I'll now turn it over to melendy to discuss our financial performance and guidance.

Thank you, Eric and good morning, everyone.

Before I begin my prepared remarks on our financial policies and outlet I'll quickly went to you that third quarter 2019 performance highlights announced in our press release yesterday.

The company reported significant growth in year over year revenue operating profit in earnings per share primarily due to higher overall railcar manufacturing deliveries with a favorable product mix as well as growth in our railcar lease fleet and sales of leased railcars from our portfolio.

Third quarter railcar deliveries were lower than our expectation.

Good due to the challenges Eric mentioned as well as weakening market demand going into 2020.

Our team has responded and re planned our production schedules for the remainder of the year and the first half of 2020.

Our reduction in corporate related expenses also contributed to our financial performance during the quarter.

Year to date corporate expense is down $37 million are 32% due to lower litigation related spend and cost optimization efforts.

As of the end of the third quarter. The company has generated operating and free cash flow before lease fleet investment.

$164 million and $215 million year to date, respectively.

We believe free cash flow generation before lease fleet investment will be approximately $240 million for 2019 or around 10% of our market cap as at yesterday's close.

Our third quarter performance is indicative of trinity's ability to leverage our integrated platform and scale our operations to meet customer demand, while generating strong results for shareholders.

We are making good progress on our key financial priorities for 2019.

Including lowering our cost of capital.

Deploying capital to return accretive investments and returning meaningful and steady amounts of capital to shareholders.

Subsequent to quarter end Trinity issued $387 million as a rated notes under an existing railcar asset backed securitization.

This issuance yielded a blended interest rate of 2.98% and increased our loan to value ratio for our wholly owned lease fleet to 56%.

By optimizing the balance sheet of our railcar leasing company Trinity has lowered our weighted average cost of capital by more than 20% since the spin off.

As we achieve our near term LTV target.

For the wholly owned leased fleet of 60% to 65%.

We believe we can further lower our cost of capital to stay competitive with other railcar leasing companies.

During the third quarter, we made a number of investments in our businesses, including a net lease fleet investment of approximately $90 million and $30 million in capital expenditures for our manufacturing and maintenance platforms.

Our year to date investment in the lease fleet totals approximately $679 million with solid returns, which we expect to be accretive to trinity's return on equity.

Turning to also completed approximately $100 million of share repurchases during the third quarter.

Bringing our year to date total to approximately $234 million.

Our quarterly cash dividend will be paid at the end of October and results in a dividend yield of 3.7% as on Yesterdays closing price.

When combining year to date share repurchases in dividends, we have returned $295 million of capital to shareholders or around 12% of our market cap.

The combined strength and cash flow generation capability of the integrated rail platform enables trinity to meaningfully invest in high return growth opportunities and returned substantial capital to shareholders.

All of these accomplishments are aligned with management's goal to deliver 2019 earnings growth and to improve our pretax Aro E. Two a three year average target range of between 11 and 13% by year end 2021.

Our financial forecast for 2019, the first year of this three year plan is on track for a pre tax ROI, we have between nine and non and a half percent.

This is a significant improvement from the 6.3% pre tax Arlene following our spin off at the end of last year.

Moving now to guidance as you've heard from chairman Eric railcar demand has been further impacted from declining railroad volumes and continued uncertainty related to slowing industrial production and global trade issues.

Our management team has responded accordingly, and has positioned our business for a slower demand market going into next year.

As a result of the lower railcar deliveries in the third quarter, some of which were designated to be added to our lease fleet, we narrowed our EPS guidance range in our press release issued yesterday.

Turning now expects annual EPS from continuing operations in 2019 of between $1.17 and a $1.27, excluding the impact of any fourth quarter potential restructuring charge.

This update results in growth of between 67 in 81% year over year.

Our revenue expectations for the railcar leasing and management services group as a result of timing of railcar deliveries to the lease fleet.

Is now expected to be between 760 and $765 million for the year.

We expect operating profit for this segment to be between 320 and $325 million for the year.

We have increased our expectations for proceeds from sales of lease railcars to railcar investment vehicle, our Ivy partners and the secondary market to approximately $400 million.

Our Ivy partners continue to expressed interest in purchasing lease railcars for their portfolios.

A reminder, that when we sell railcars to our R&D partners Trinity keeps the customer relationship and.

For a management fee. Therefore, we grow our managed lease fleet with our Ivy partner capital.

The timing of railcar sales from the lease fleet is always difficult to predict.

And our margin on railcar sales year to date reflects the younger maturity on the railcar assets sold from our lease fleet as well as some portfolio fine tuning we have done to manage our diversification.

Another reminder, we had sales type leases in our earnings guidance, which are required to be accounted for as sales top as sales from the lease fleet in accordance with GAAP.

We expect this to add an additional $160 million in car sales revenue for the year.

With 61 million of this revenue being recognized year to date.

The gain on sales from the lease fleet will be attributed to the total leasing segment profit and our EPS guidance range incorporates these assumptions.

Moving to the rail products group, we're revising our railcar delivery guidance range to 21500 to 22000 railcars for 2019.

Rail products revenue is now expected to be approximately $3 billion with an operating profit margin of approximately 9%.

Operating performance from the all other segment during the fourth quarter.

We will be impacted by seasonality in the highway business as well as costs associated with new product development efforts.

This segment is also impacted by some transition expenses and peripheral businesses to align with our go forward operating structure.

Our business in corporate teams continue to work collaboratively to optimize our operating structure and right size corporate costs.

As a result, we've again lowered our corporate expense guidance range guidance range to $105 million to $110 million.

As a reminder.

Our corporate expenses include transition in stranded costs related to the spinoff and separation of our COSA as well as an elevated level of highlight highway related legal expenses.

In our press release yesterday, we highlighted the potential for restructuring charge in the fourth quarter as a result of cost optimization efforts specific to underutilized asset write downs in our manufacturing footprint and employee transition costs.

Again, our fourth quarter 2019, EPS guidance range does not include any restructuring charges. We may incur as these decisions are finalized.

Due to fewer railcar additions to the lease fleet, we're lowering our guidance for revenue and profit eliminations to $1.4 billion and $165 million respectively.

These line items reflect the revenue and profit associated with the market based transfer pricing for intercompany transactions between our railcar leasing and products business segment, primarily for newly manufactured railcars.

Regarding our lease fleet investment.

We now expect total net lease fleet investment at $850 million to $950 million with fewer secondary market additions fewer planned railcar additions and a higher level of portfolio sales from the fleet.

In addition to our planned leasing capital expenditures, our manufacturing and corporate corporate capital expenditures forecast is revised to $110 million to $120 million given expected project progress by year end.

Looking into 2020, it is too early to provide any specific financial guidance given the uncertainty of economic factors that affect the railcar market as well as the increased pricing competitiveness as a result of lower demand.

As Eric mentioned, we have market driven headwinds affecting our railcar production expectation for next year. However, we anticipate leasing revenue and profit from operations will be higher in 2020 as a result of lease fleet growth.

We're also defining significant goals for cost savings initiatives.

Both in our businesses and our corporate organization.

For 2020, we expect our free cash flow before lease fleet investments to improve year over year, primarily as a result of lower working capital needs in the business.

In closing our leadership team has been working closely with our board to refined to refine this strategic plan for Trinity industries, and establish key priorities and initiatives going forward.

Vision purpose and strategic priorities stem from our belief that Trinity Rail's platform is the best model to compete in the railcar industry and we aim for our results demonstrated.

We're prepared to respond to a lower railcar demand market in 2020.

While a number of macro up and macroeconomic factors create headwinds for our business. Our leadership team is excited about the opportunity to refine and evolve our business and demonstrate the value of Trinity Rail's integrated platform.

We have a number of levers within management's control that can provide meaningful tailwinds to our financial performance in 2020 focused on that elements of our OE improvements.

This business model was built to outperform throughout the railcar market cycle by generating predictable cash flows from long term leases and capturing upside demand to maximize shareholder value.

These combined financial advantages of the integrated rail platform enabled Trinity to meaningfully invest in high return growth opportunities, including our lease fleet, while also returning substantial capital to shareholders.

We'll now transition into the queue in a session. Operator will you. Please give our listeners the instructions.

Certainly at this time, if you would like to ask a question. Please press. The Star then one on your Touchtone phone you may withdraw your question that any time by pressing compound key again. It is star then one last quick question.

And we will take your first question from Bascome majors with Susquehanna.

Yes, thanks for taking my questions here, Tim Congrats on the looming retirement I was hoping that you could share of the board's perspective on both the timeline for the next CEO higher at Trinity and maybe the skill sets that you are really focused on win win when you're.

Trying to find who's going to lead deal effectively with.

In a lifetime family business are you into the next generation. Thank you.

Okay. Thank you appreciate your comments and.

Hi response to your question.

As I said the board initiated research.

Across our scores CEO and we're considering both internal and external candidates and our board is responding by.

Instead will issue this is a very high priority.

This is an independent selection process.

Im participating in the process at the request of the chairman.

From time to time.

I'd say the selection process is going really well.

And we'll comment publicly when there is announcement to be made about this overall I'm very pleased with the situation.

The search really gives us an opportunity the refresh the CEO role and I am highly supportive of the entire process.

We have a.

Wide variety of.

Competencies that we're looking for.

The new CEO , and we'll talk more about it as we identified as they identified candidate and.

Introduced versus two.

Hello.

Okay fair enough and one for a complete once that's completed as your intent.

We remain on the board or.

Is that something where were you would have been should we stepped down as someone takes over.

Yes, my intent is as soon as the CEO .

Takes this position as CEO I will no longer be on the board and I will assume position as an advisory role and assist what I can but it's important to me the the person that become CEO with the company.

Has the full latitude being able to lead and direct and manage the company. So I do not plan would be actively involved I had was head of lot of fulfillment.

Watching our COSA.

As a public company and seeing the team their whole together and create value for the shareholders and I ultimately will have that same position as a shareholder.

Trinity watching the company.

Phil its vision.

So.

I have a very active personalized planned.

And so.

I'm not going to be.

Actively involved in the company on the long term basis.

Okay. Thank you for that detailing.

Thoughtful perspective, and we wish you the best and now we'll look for the next phase to update from you guys in the board. Thank you.

Thank you.

And we will take our next question from Matt Elkott with Cowen Your line is open.

Good morning, Thank you and Tim congratulations on the upcoming retirement.

If I look at the last five years, you guys have averaged about 37% of industry orders.

This year to date, you have about 27%.

So what I look at dish and see that you're also expecting write downs on underutilized manufacturing assets is there is this a strategy to reduce your manufacturing footprint as you focus more on growing the lease fleet and transition into more of a lesser.

During Q1 to take that sure.

Ill take that so I wouldnt no I don't think our strategy is to reduce our manufacturing.

Footprint.

But the reality is.

We have a 125000 railcar lease fleet.

And so.

All of our opportunities that that.

Our commercial opportunities are inquiries have to go through that hundred 25000, Roper bleak before we build and other railcar. So I think the result is you get a more.

Efficient platform.

As a builder with a large lease fleet.

We're going to act more like Dave.

Asset owner.

The when it comes to specifically the write downs.

Those were older.

Non operating manufactured assets.

We have non op, we did not operate them in this last railcar cycle.

As we as we went through we've expanded our production footprint elsewhere with our existing facilities and so we really didn't see a need for those facilities in the future.

This Tim also the some of the facilities, we're talking about our legacy facilities, we kept one we intentionally.

Kept some facilities and let our COSA go ahead and.

Have a clean start and we.

Two.

Responsibility for some of the older facilities there had been.

Idled and trading for a number of years.

These are good insights. Thank you very much just one more question on the lease fleets.

In the current tough environment for a phrase overall and also given.

The small cube covered hopper fleet that you have within the lease fleet how much more.

Pressure should we see an on utilization.

As we exit 2019 and into 2020.

So we have certainly we have a good line of sight on our explorations.

Both the remainder of this year and into next year and I think I mentioned that as we look at our explorations next year and the lease rates.

Where are those current lease rates are in those car types weeks, we see about a 2% headwind which is very modest.

We do not expect to see significant.

Ages, and our utilization, we're working to keep our fleet fully employed and we're acting very comfortable with our renewal expirations as Don.

When we work very hard to smoothed out any exposures to certain markets and so we're very comfortable risk as we go into 2020.

So Eric if the underlying freight environment does not change much between now and and into 2020 or by the end of 2020.

You think that it's plausible that the utilization rate.

It will not be materially different than what you have though.

I think the as I mentioned in our comments, we expect we do expect more railcars in the North American fleet to enter storage.

But it's still a relatively good level you talked about the small cube covered hoppers.

And a year ago that fleet was well over whereas about 90% utilize today, it's about 75% utilized because it's still fairly.

Utilized from historical standpoint.

Two years ago had gotten into the 60% range.

So from that standpoint, it feels worse than it is because it's 90 to 75 was a big drop.

But 75 compared to the overall fleet over the low eightys isn't that different so I just want to put that out there that it fits well, it's lower than the to the decline has been dramatic in terms of pace.

But the level that its fall into is not unprecedented.

Great. Thank you very much.

And we will go next to Justin long with Stephens.

Thanks, Good morning, and Tim Congrats on the retirement and wish you the bat.

Maybe that to start with my first question you gave some color on a few items for 2020 will clearly have some pressure in the railcar manufacturing business, but you mentioned the lease fleet will grow and there are some cost actions underway. When you put everything together just from a directional.

I'll standpoint, do you think next year is an opt aero or down Arrow for U P. S.

Good morning descendants melendy.

Yes.

I would say that especially given the delivery the deliveries that we expect I would say over all.

It would be down.

However, I mentioned that there are a number of levers in management's control and I think we've demonstrated this year that we will take action on those such that.

The EPS decline would not be as much as as you would expect so.

Does that give you a good sense, yes that that's that's helpful and maybe following up on that I wanted to ask about railcar sales going forward.

Obviously the guidance for this year was with increased yeah, we're at a pretty elevated level relative to kind of historical averages and I know this will be a key part of the business going forward, but is there any sense you could give us for what you expect from railcar sales going forward, whether it's 2000 2020 or just.

On a normalized base basis, and then also the margins on railcar sales have been around 17%. This year just curious directionally. If you think thats still a good place to be going forward. Thank you.

I guess, so with regards to railcar sales, we did increase our guidance from 350 million to 400, and that's primarily driven by our railcar investment partner demand and it's also part of our desire to grow our lease fleet.

With our investment partners capital.

I'm not really prepared today to signal specific car sales per 2020, but what I will point back to is as we set out as a new Trinity Company. We said that we want car sales to be and as we continue to grow the lease fleet, we want car sales to be more of a normal part of the way we do business.

And we want our R&D program to be more programmatic and so.

I believe at the time, we said something like 300 to 350 million of sales in any given year.

I would be what we were what we were targeting I see that moderating in years, where we don't grow our lease fleet as much.

And so that kind of gives you are our general thoughts about car sales.

Without any specifics for 2020 speaking specifically to the margin.

There there are a number of factors that impact what that margin is one is the age of the cars.

Another is the type of cars the market value of the cars that are in the portfolio that we sell as well as the yield on those assets. So.

You know I would say that that we would expect ours ours, we would expect our sales to RMB partners to be in a similar.

Margin range to what you've seen historically.

Yeah.

Okay, Great. That's really helpful. I appreciate the time.

And we will go next to Gordon Johnson with GLG research.

Hey, guys.

Good morning.

Hey, How's it going sorry about that just some issues with the phone. Thanks for taking the question I.

I guess the first question I just wanted to know if you guys management. They are seeing stat. The investment community gives.

You guys enough credit for earnings from selling railcar assets between the manufacturing division and the leasing division and if not how do you plan on addressing that.

We have fab, we've communicated as I mentioned that our plan is we consider it and advantage of our integrated platform to have the ability to.

Monetize those assets while at the same time, keeping the customer relationship and the servicing opportunity at those assets. So not only do we received a management fee, we keep the customer relationship and we have the opportunity for those cars to continue to take advantage. It advantage of services that are offered.

By our platform. So our our goal is that by making our railcar sales more predictable and more programmatic.

On that that those will be considered as part of our earnings and cash flow generating ability.

Okay. That's helpful and then Theres been some concern as I'm sure you guys have heard about TSR and.

Some of the shippers kind of I.

I guess complaining that lease we've heard some recent concerns.

Have you guys heard these concerns and what's your view there.

Sure Gordon this is there for federal I'll take that so.

Let me first.

Yes, PSR as certainly a big topic.

Let me just step back Im talking about rail transportation and then we'll get into the PSR rail transportation is still the lowest cost in the greenest mode of land based transportation. So it starts with an inherent advantage.

Rail traffic has declined.

In the last year and Thats certainly as have had an impact on demand for railcars.

The railroad implements.

PSR.

The first thing they do as they look to rightsize the assets on their line and so that will have we were there to try and get railcars off of their lines.

And then when there is growth they're going to have to turnaround add cars.

At that time, which will either be in the form of shippers.

Cars or railroad curves.

PS the good news on PSR is now we're hearing.

For the first time and a few years more the railroads talked about growth.

And driving traffic growth.

Specifically modal sphere, we've not heard that in the last few years. So that's that's real positive that theyre going down that path from an operating system more efficient operating system, which will lead to more efficient railroad network.

It would be good for our business certainly long term.

You mentioned to mirror each another fees.

Related to.

PSR.

Demerge is incurred when railroads on railroad equipment was about 20% of the fleet.

It's an unplanned expense.

For shippers, which no business legs unplanned expenses, so thats certainly generated points of frustration with the with customers. There's also other.

Other ancillary fees.

Charged the private railcars and this is can be a point of frustration.

With shippers.

Generally the impacts of PSR has been principally more on on rare supplies cars like.

Well cars boxcars flat cars.

It does impact covered hoppers and the Green service and agricultural service, which is typically a little more or less or provided roper. So thats one spot we're.

I would have a negative impact on the on the operating lease in community.

Excellent listen guys. Thanks for the questions and Tim Congratulations and enjoy the retirement.

Thank you.

And we will go next to Allison Poliniak with Wells Fargo.

Hey, guys good morning.

Morning.

Congrats Tom just like all have you been comments on that.

Cut back thing Matt asked a question about lease just like to get your thoughts.

Because of our your philosophy on managing the utilization that fleet I know these fleets are fairly stable.

We'll take a step down from here entering 2020, I mean, how are you thinking about that you know raise first in duration versus that utilization number.

Sure Allison this is Eric I.

I mean, thats always the AR is managing.

Though less or once railcars to go in stores.

It tends to be.

Negative.

The negative events in terms of earnings.

As rates are falling with you have a decision to make whether you want to go.

Short on lease terms of its generally going to be determined by what those lease rates or if there and what the yields on those assets or if there if they're lower the cost of capital on a on a yield basis. We go shorter if there if there are higher than you walked in longer term.

We will vary dealer deal for our type by car type. That's certainly something that we are very conscious of and we manage accordingly.

Great and then I think it back to you on the operational challenges continued capacity expansion bleed.

Stand on not a little better to seemed a little bit unusual for Trinity integrate operator, what was going on there and it's something that's going to continue in Q4.

Okay, Allison I'll start with that Paul could add any color.

So.

Generally we had a.

We've had as we talked about on previous calls this year, we have a very high mix of of railcars required interior coatings, both on the tank side in the freight car side.

We've made investments to expand our capacity in that.

Space, we build cars ahead of that lining capacity and weve.

In or is it.

And in return we add to what we started line in some of those stores this quarter more wind in the remainder of the year. So that adds additional cost and throughput challenges in terms of getting the units that we expected.

Just to Allison. This is Paul just to give a little bit more color on that we had two major capital projects that we took on this year unit deliveries were predicated on us getting those projects done on time. Unfortunately, both those projects were delayed for various reasons really outside of outside of our control. So those delays in them.

Project really impacted our ability to deliver units in third quarter, New scared pointed out we had.

Historically high number of line cars coming into our product mix this year.

Great. Thanks, that's helpful.

Okay.

And we will take our final question from Matt Brooklier with Buckingham Research. Your line is open.

Thanks, and good morning.

Graduations on a year pending retirement.

So I.

Just wanted to follow the Allison's question.

We know that rail group margins were negatively impacted by some inefficiencies in the quarter and obviously the.

Lower.

Volumes and anticipated that contributed as well, but as we're looking into fourth quarter, you know Directionally, where where do we think margins are do you think Robert margins are up our they bought the same maybe provide a little bit color there.

Hi, Matt This is melendy, so what I guided for the full year is a 9% approximate margin for the segment and that would be for the full.

2019 year.

And so that would be I would say a little bit of improvement from third quarter to fourth quarter to make that math work.

And then it is I think about it.

Theres kind of.

Diverging.

Kind of diverging trends and energy businesses as you guys in crowded next year, you know expectations are that deliveries are going to be down and that's going to put some pressure on profitability within rail group, but to the messages are doing some company specific things on the leasing.

Out of your business, where where you think you can you can grow the fleet and hopefully also improved.

Profitability next year, so I'd I'd. If you could just talk to you know what are some of the contributing factors that can you know gives you conviction that you're going to be able to grow your lease fleet.

Next year, you know in a market that right now doesn't seem to favorable.

Sure. This is Eric I'll take that.

Yeah. Our track record is are kind of speaks for itself in terms of the growth that we've.

The rate of growth than our lease fleet over the last 20, some odd years.

Our platform.

Our market visibility in our platform is unprecedented.

Our broad product line, our ability to originate leases.

So I'm quite confident we'll continue to be able to originate leases.

That are accretive to our.

Earnings and that will be able to perform we have line of sight on.

So we still expect 40 to 45000 railcars are low fortys the mid Fortys.

In terms of industry deliveries.

Industry has a.

As a healthy backlog, so while as well as we expected speed lower next year in terms of industry deliveries, we still would expect them to be relatively good.

So, it's it's a healthy industry and so with that.

Demand for lease railcars continues to grow.

Whether that's through PSR or other other trends.

Trend has been for.

Railcars, we provided the shippers provide railcars and they typically do provide them through operating leases. So nothing is going to change there.

This is Tim another thing to take in consideration during the slower demand periods.

We experienced historically.

There are people that want to sell assets and.

Railcars for a variety of different reasons and we picked up.

A lot of.

Nice.

Railcars during those time periods and this is the shippers that.

Want to sell railcars or other leaseco correct.

Hey, I guess the messages.

Doing doing things you've done in the past you believe should enable you to.

Grow your market share and given kind of the environment and things being a little bit weaker here, you think there's opportunities to potentially acquire.

Cars portfolios of which will be additive I guess the growth story, yes, yes, the all of that our platform that is.

Built to perform throughout broker cycles.

Whether it's a a.

When you look at railcar manufacturing the thing you can count on his change year over year, So that's up or down and we're used to that we are.

We.

Measure us by improving our returns in the business a year in Europe , and that's what we're going to do.

And then just finally I think someone did mention it on the call that.

In a market that is a little bit weaker than maybe the pricing environment on new railcars has gotten a little bit more competitive.

If I heard that correctly.

Can you talk to.

You know directionally, how much how much pricing has has changed and I guess your your expectations going into into next year.

I'm trying to get my arms around if work or we should we could see some incremental pressure in terms of new car pricing across the industry.

As we move into 2020 thanks.

Sure so.

When you look at this is Eric again, when you looked at existing lease rates.

We've seen modest declines in lease rates in the current quarter and as we looked at these lease rates and compare it against or explorations next year, we see a modest decline in lease rates.

The when you look at new car pricing.

New car price asset pricing.

Has come down somewhat slightly.

That's probably more of an impact.

Raw material prices coming down some steel prices have fallen.

Both the steel plate coil and scrap prices stole that has an impact.

The margins.

Orders that we took in the.

Third quarter on a on a.

For sale those margins I would characterize I'd characterize is very good.

So from that standpoint.

Good.

New car lease rates interest rates or have fallen so certainly we've seen lease rates on on assets.

A new assets come down a little bit as a result.

Generally there's there's probably in periods like this you get a little bit wider range of pricing, we do see some.

The shippers subleasing railcars in the market generally when they started subleasing refers that can have a downward impact on lease for it.

Yeah.

Okay.

Matt are you there.

Yeah.

Operator, we can go to the next question.

Certainly.

And we do have an additional question it comes from Steve Burger with Keybanc capital markets.

Hey, thanks.

Tim as you in the board think about setting up trendy for the next leg of of its history.

For the external candidates are you considering people from outside the real world or more broadly from outside machinery manufacturing.

Yes.

Great.

[laughter] well, we're just we're just very the board is very open minded we have recruiters and.

They are looking for.

People that they think could come in here and take charge the organization and provide some superior leadership as well as internal candidates. So very out we're very very.

Very open minded.

Got it. Thank you and Melendy you said you expect free cash flow before fleet investment to improve next year.

But any thoughts.

Is there any environment, where you would envision free cash flow will be positive, including lease fleet investment.

We really haven't put that finer point on it to this point, Steve the primary as I mentioned, the primary driver as free cash free cash flow improvement before at least when investment for next year is that our business will be consuming less working capital right.

And then just the environmental will dictate what the the size the lease fleet investment as well and anyway and if you can think about the lease fleet investment net of financing that we would do you know as we add leverage to as we got the lease fleet net leverage to that none of that financing our free cash flow would still be free.

Cash flow before lease fleet investment in after financing would still be positive for 2020.

Got it and one last one your buyback program. So far this year as a higher average price than the current share price can you talk about your thoughts about buying shares and do weaker industry conditions as we look into 2020 and as the board considered other ways to deploy capital, maybe a special dividend or something else.

At this time, we're operating more in a share buyback and opportunistic share buyback and we've tried to be.

Very programmatic and we have increased you saw us in third quarter increase our share repurchases as the as the share price declined and and so we expect to can continue to regularly and programmatically repurchase shares.

Ears.

As far as the board's consideration for any other deployment as capital to shareholders. At this time, there hasn't been discussion about anything such as a special dividend, but this is a topic that is routinely discussed with our board and it's something that we will we will stay flat.

Flexible as as the market gives us the opportunity to make the appropriate decisions to return capital to shareholders.

Got it thank you.

Thank you.

And this does conclude the Q in a session I'd like to turn the program back over to Jessica Greiner for any closing remarks.

Thank you Aaron that concludes today's conference call a replay of today's call will be available. After one o'clock Eastern standard time through Midnight October 31st 2019. The access number is four zero to Q2 zero seven to zero five a replay of the webcast.

And definitions and reconciliations of certain non-GAAP measures discussed during the call well also be available under the events and presentations page on our Investor Relations website located at Www Dot trend dot net.

We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.

Thank you for your participation. This does conclude today's program you may disconnect at any time.